A share is an ownership interest in a limited liability company. When you own a share you are also a partner in that company. When a corporation is formed, the founders (also called founding members) pay in the share capital. The share capital divided by the selected number of shares becomes a share’s par value (also called the nominal value). All shares of a company have the same par value, however, all shares need not otherwise confer the same rights. A share is essentially a right to the company’s assets after all debts have been paid. The shares are collected in a share register.
A share’s meaning
Holders of a share have a limited liability for the company’s business. The company’s Board of Directors is responsible for the company’s management. With their investment, shareholders risk losing the price they paid to acquire the shares. Through their ownership stake in the Company, shareholders are entitled to attend and vote at the general meeting and receive part of the company’s share dividend. At the general meeting the Board is selected and it is decided how the profits will be distributed. The number of shares in a company can be changed through a share issue of any kind or by splitting the shares.
Shares and different share classes
A company may issue different types of shares. The most common are known as A or B shares, where one A share entitles the shareholder to more votes than one B share at the general meeting. Usually one B share corresponds to 1/10 of a vote against an A share. The reason a company offers shares of different types may be that the original shareholders would like to retain power in the company but still spread ownership to more people for example in order to bring in risk capital. Most shares in private limited companies are so-called ordinary shares. One ordinary share is a common share that does not provide any particular advantage or preferential rights over other shares. By contrast, preferred shares give an advantage over ordinary shares. The advantage could consist of priority for share dividends or priority for dividends in bankruptcy. Voting value is often lower for a preferred share than an ordinary share. All shares are that are not preferred shares are ordinary shares.
For a listed company the value of a share is set every day through the trading done on an exchange or marketplace. It is significantly more difficult to put a price on an unlisted company’s shares. Typically the value of a non-listed companies’ shares are set through negotiation between the existing owners and buyers, where the starting point is that either party has carried out a valuation of the company. A shareholder in an unlisted limited liability company may recoup in two ways, either through the company paying dividends or someone acquiring the shares.